Dell bookkeepers got a little too creative with their figures.
A Federal Trade Commission (FTC) investigation has unveiled some unseemly behavior on the part of Dell Inc. over the years. As these allegations have come to light, Dell has tried to come clean by revealing an even darker secret.
The Federal Trade Commission’s investigation has been ongoing for the last two years. It has centered around backdating options to maximize the company's value on paper. Soon the investigation took a worse turn, though, when it was discovered that Dell was "cooking its books" so to speak to make its earnings seem better than they really were.
Dell's fiscal managers would shuffle money between accounts to try to cover over losses and hide struggles in various departments with successes in others. Senior executives had knowledge of these activities and even encouraged them.
The money compound and the net result is that the company is $92 million USD less than it said it did over a four year period, or about $23 million USD less per year.
Dell has submitted five amended or updated 10-Q reports with the US Securities and Exchange Commission yesterday accounting for these "errors" based on the results of its internal investigation on the matter.
The reports included a statement which says the following:
[There is] evidence that certain adjustments appear to have been motivated by the objective of attaining financial targets. According to the investigation these activities typically occurred in the days immediately following the end of a quarter, when the accounting books were being closed and the results of the quarter were being compiled. The investigation found evidence that, in that timeframe, account balances were reviewed, sometime sat the request or with the knowledge of senior executives, with the goal of seeking adjustments so that quarterly performance objectives could be met.
The formal report follows a verbal admission which Dell issued two months ago, covered here at DailyTech.
The problem is not merely that the earnings were misstated, but that the misstatements compounded and made the company appear more valuable than it really was. This is liable to hurt investors in the firm.
Dell CEO Michael Dell says that now that the unpleasant news is out of the way, the company can resume its quarterly strategy calls late next month -- a practice the company suspended when the investigation began. The strategy call will take place on November 29, with a stockholders meeting following, the next week.
It is expected that for these meetings Dell may tap CFO Don Carty, former Disney executive who was recently recruited by Dell to bring back accountability and respectability to the business.
Carty pushed for Dell's financial department to reveal the full extent of its mistake.
Apparently honesty really does pay off. Following Dell's admission some investors starting buying stock, raising it 2.5 percent last night. Dell hopes that its admission will lead NASDAQ to not follow through with its threats of delisting. Most experts think NASDAQ is unlikely to make such a move.
Dell is the second largest seller of home computers in the U.S. It was formerly number one, but has been struggling, losing market share to HP. The struggling giant has also been losing business in the server market. Dell is trying to expand overseas, including in China, as reported at DailyTech.
Dell did show signs of life in the second quarter of 2007, beating expectations. Hopefully the new revelations are the sign of Dell really turning over a new leaf, as the computer giant faces a difficult uphill struggle regaining market share from its rival HP.
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